Thanks Neil, that's a really useful post.
Anke - it's far more likely that the nurseryman was shut down for
non-payment of VAT. Smallholdings are a bit of an anomaly, since they are usually net reclaimers of VAT. Most shops on the other hand will buy something for say £1 + VAT, so £1.20 and then sell it for £2+VAT, so £2.40. They'll then claim back the 20p they originally spent, and will owe the VAT man the other 20p. (At the risk of being totally patronising, that's 20%
Tax on the
Value they
Added - sorry, can't figure out how to make that spell VAT!).
If a business hits tough times, it's easy to pocket the full £2.40, but all those 20ps soon add up, and at the end of the quarter, if you can't pay the VAT man.......
I've currently got exactly this problem with my own self-employed business (not the smallholding). After a very lean year when I was mostly working outside that business, I've been absolutely flat out over the past quarter (yeah, I know!). However, the invoices I raised yesterday don't become due until the end of July or even August. The problem is that the VAT man wants his money on 7th August*, and there isn't currently enough cash in the business account to pay him. That means that if my clients are even a week late paying their bills, I'm in trouble.
It's been a very profitable quarter, but if I don't keep an eye on cashflow, I'll be toast, just like the nurseryman!!
* I'm describing the normal situation here, without any CV-19 dispensations.